Money crackdown hits India’s corporate profit recovery

Indian Prime Minister Narendra Modi’s crackdown on black money may have an unintended consequence: a slump in consumer spending that hits India’s corporate earnings recovery. At risk is a strengthening earnings picture that has seen three quarters of gains, after operating profit fell in every quarter of 2015. Finance Minister Arun Jaitley said November 9 the move will damp consumption in the short term, a belief that’s helped send an index of consumer discretionary goods to a four-month low. Economic expansion of above 7 per cent, the $13 billion (over AED 47billion) salary boost for government staff and a good monsoon after two years of drought had led investors to bet on company profit growth accelerating. Goldman Sachs Group Inc. in October forecast corporate earnings growth in India to outpace its regional peers in the year to March. The sudden decline in money supply has muddied the picture. Modi’s decision to withdraw 500 and 1,000-rupee notes, which accounted for 86 per cent of the money in circulation, has virtually stalled the economy. While no one is predicting the anti-graft measures to push Sensex earnings into negative territory just yet, the move will disrupt segments of the economy such as property and gold where cash transactions play a vital role, analysts say. (Rajhkumar K Shaaw and Santanu Chakraborty/Bloomberg)